Setting up bank branches abroad: SBP suggests revised policy framework

The State Bank of Pakistan (SBP) has suggested revision in policy for establishment of subsidiaries/opening of branches/representative offices by Pakistani banks abroad under the draft policy on Investment Abroad by Resident Pakistanis, 2016. Sources said on Thursday that the SBP has suggested a revised policy framework for establishment of subsidiaries/opening of branches/representative offices by Pakistani banks abroad and remittance on account of Minimum Capital Requirement of overseas Central Banks. Exchange Policy Department of the SBP has suggested a policy on investment abroad by resident Pakistanis 2016.
The SBP said that the sound Pakistani incorporated banks will seek permission of SBP (BP&RD) to establish their overseas subsidiaries and branches. They will have to differentiate between the establishment of expenses and minimum capital requirement/capital adequacy requirement of the overseas Central Bank/supervisory authorities. Overseas subsidiaries and the branches will have to bear their expenses from the revenues generated abroad and funds remitted initially with SBP's permission as establishment expenses and for meeting the MCR. Banks are advised to obtain NOC from the Banking policy and regulations department before establishment of representative/ marketing/liaison offices. However, prior permission of Exchange Policy Department is not required for establishment of representative/ marketing/liaison offices by the Pakistani incorporated banks. Banks can remit up to maximum of USD 50,000 per financial year under annual recurring expenses of representative/marketing/liaison offices. Any remittance above aforesaid ceiling would require prior permission of Exchange Policy Department.
Banks interested in incorporation/establishment of subsidiary or branch will approach EPD with the following documents: Request on Appendix V-95, NOC from Banking policy and regulations department, copy of latest income tax return submitted to FBR, business plan with financial feasibility and economic viability. Feasibility should contain projected balance sheet, profit and loss statement, cash flow statement and audited annual accounts for last three years to assess the financial strength of the bank.
In case of business expansion in the form of acquisition in the country of investment or from the country of investment to any other country, bank will seek permission of the SBP. The potential investor will submit an undertaking to deploy Pakistani staff in the branch or subsidiary, if there is no limitation of overseas central banks. In case of any limitation, maximum number of Pakistanis will be accommodated in overseas banking operations.
After evaluating the requests, an "in-principle" approval will be issued and the remittance of funds for any consultancy or legal formalities will be allowed at this stage. For formal approval, the banks will be required to submit the following documents: Formal approval of Banking policy and regulations department and approval of the overseas Central Bank.
On receipt of the above mentioned documents, formal approval will be issued and the funds/ remaining funds will be allowed to be remitted. Locally incorporated banks may alter their shareholding pattern in their existing overseas entities by way of rights issue/issuance of preference shares/secondary offerings after prior approval from SBP (BP&RD). Banks should approach SBP (BP&RD) along with the requisite information and documents as outlined above, it said.
Pakistani banks having overseas operations are allowed to remit funds to meet the Minimum Capital Requirement (MCR)/Capital Adequacy Requirement (CAR) of their overseas branches after prior approval from the SBP. The amount of remittance will depend on MCR/CAR prescribed by the overseas central banks. The requests of banks for equity injection in its overseas operations for growth of business purposes will be evaluated against comprehensive business proposal submitted with their application including projected financial statements and allied benefits to the economy. Growth in risk-weighted assets due to investment in riskier assets and profit repatriation history would also be taken into account.
The banks will approach EPD by submitting the following documents: application stating the existing capital and required capital, circular/directive of the overseas central bank describing the minimum capital requirement, approval of the Board of Directors; audited annual balance sheet of overseas branch/subsidiary, NOC from BP&RD and business proposal including projected financial statements and allied benefits to the economy.
The banks working abroad either in branch mode or subsidiary mode are required to repatriate their share of profits annually as per prescribed mechanism. Further, banks will submit an undertaking to create maximum employment opportunity abroad for Pakistanis subject to the host country regulations and would repatriate their share of profit as per BP&RD's circular No 5 of 2009. After permission, the potential investor will submit a return on Appendix V-96 and Annual Performance Report (APR) of the business every year.